After a much celebrated boom – building approvals recede

Approvals now in decline city ipad building
It has been a significant boom indeed for Building Approvals through this cycle, but now we are now coming down the other side of that particular mountain.


In seasonally adjusted terms approvals of attached dwellings (semis, townhouses, units and apartments) declined by -10.8 per cent in January to be -26.7 per cent lower than one year ago.


More significantly monthly attached approvals have trended down from 10,120 in March 2015 to 8,285 in January 2016.
In rolling annual terms, total approvals have passed their peak of a record high 237,240 achieved in October 2015, declining to 231,750 by January 2016.

There will doubtless be further declines to come through 2016.

City by city

At the capital city level in rolling annual terms house approvals have declined by -15 per cent in Greater Perth over the year to January, which should help to support the market in the Western Australian capital through its downturn phase.

Note how the strong level of attached dwelling building in Sydney has to some extent come at the expense of the construction of detached housing.

January is always a very quiet month for apartment approvals and there were sharp declines in Greater Sydney, Melbourne and Brisbane, with all major capital cities notaby now tracking below their cyclical peaks in rolling annual terms.
On balance, this is a positive development, as come city hubs will be grappling with localised high density stock oversupply over the next year or two.

The wrap

This cycle has largely been driven by a record number of building approvals for units and apartments in four plus storey blocks, but this trend may now be fading.

Note that not all building approvals will become dwelling commencements, and by no means will all apartment completions will make it to the rental market – even those bought by investors, particularly those bought by offshore buyers.
In historical terms, the number of “high rise” approvals has been extraordinarily high through this cycle, in part reflecting Australia’s changing demographics as well as increased demand for apartments from offshore investors.
Overall this has been an impressive boom in residential construction, but the peak in residential construction activity is evidently now in the post.
In turn other sectors of the economy will need to step up the plate.

Figures released this morning showed that the terms of trade moved sharply lower again in the fourth quarter of 2015, while net exports will not make a contribution of any significance to Q4 GDP.

With the exception of public demand/spending, indicators are increasingly pointing towards a weak quarterly result for GDP tomorrow, and perhaps +2.5 per cent growth for the year.

Slowly but surely, interest rate cuts appear to be becoming increasingly likely.

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Pete Wargent is a Chartered Accountant, Chartered Secretary and has a Financial Planning Diploma. He’s achieved financial freedom at the age of 33 - as detailed in his book ‘Get a Financial Grip – A Simple Plan for Financial Freedom’. Pete now manages his investment portfolio, travels and works as a consultant in the finance industry from time to time. Visit his blog

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